Skills and new businesses drive decade of recovery for UK cities - PwC’s Good Growth for Cities index

Nov 01, 2018

  • Oxford and Reading top growth league for third year running, but Preston most improved.

  • Cities in the Midlands & North of England amongst fastest improving for second year running

  • Falling unemployment helped some cities improve ranking in latest year, overtaking most improved cities from previous years

  • The price of success in terms of reduced housing affordability and increased average commuting times is becoming increasingly evident for cities at the top of the index rankings

 

Improving skills levels and new business formation have been the key long-term drivers of city growth since the financial crisis, according to the latest Demos-PwC Good Growth for Cities 2018 index that ranks cities on a combination of economic performance and quality of life.

 

The latest Index analyses a decade of economic and social  data to determine what long-term factors drive Good Growth. PwC analysis shows that the average city in our index has improved its good growth score significantly over 10 years from 2005-7 to 2015-17, and has now more than recovered from the recession and downturn triggered by the global financial crisis.

 

Improving average skills levels for the UK’s youngest workers and driving new business formation have been the strongest drivers of good growth over the past decade, while unemployment levels have fallen back to around pre-crisis levels. However, this long-term retrospective analysis also highlights areas where there have been structural deteriorations for cities across the UK, particularly around reduced housing affordability and owner occupation rates and steep increases in average commuting times.

 

These longer term trends contrast with shorter term movements in the index, which have been driven primarily by falling unemployment rates and, in part due to this, higher household income levels.

 

Published today [1 November 2018], the seventh annual Good Growth for Cities 2018 index sets out to show that there’s more to life, work and general well-being than just measuring GDP. The index measures the performance of 42 of the UK’s largest cities, England’s Local Enterprise Partnerships (LEPs) and the nine Combined Authorities, against a basket of ten indicators based on the views of the public as to what is key to economic success and wellbeing.

 

These include employment, health, income and skills - the most important factors, as judged by the public - while housing affordability, commuting times, environmental factors and income inequality are also included, as is the number of new business starts.

 

Oxford and Reading top the index for third year running

Oxford and Reading continue to lead the pack of highest ranking UK cities for Good Growth, reflecting improvements particularly in income levels in the latest period. However, Southampton is gaining ground and beginning to close the gap between the top two cities and the rest of the index because of an increase in the number of new business startups in Southampton compared to last year’s report.  .

 

This year’s index sees Preston topping the most improved city rankings since last year’s index, with other big improvers including Middlesbrough & Stockton and Wakefield & Castleford, which had previously been low performers in the index. However, much of this new cohort of improvers reflects the impact of substantial falls in unemployment rates reaching out across all parts of the UK.

 

John Hawksworth, chief economist at PwC, commented:

 

“Almost all UK cities have seen improved good growth scores in recent years, driven primarily by cyclical falls in unemployment rates that have now rippled out from the South East of England to regions like the North East that were previously lagging behind.

 

“But the more interesting perspective is provided when we look at the whole decade from 2005-7 to 2015-17, which covers a full economic cycle and therefore allows us to identify deeper structural trends. The good news here is that successive cohorts of young workers have higher average skill levels, which is pushing up index scores together with rising rates of new business creation in most cities.

 

“But the flip side of this success has been worsening housing affordability and consequent falls in home ownership rates precisely for those young people who have invested in acquiring new skills. As they are pushed further from city centres to afford a place to buy or even rent, average commuting times have also risen. Having largely recovered from the financial crisis, addressing the housing and infrastructure supply constraints that drive these negative trends will be key challenges for the next decade for both central and local government, looking beyond the immediate issues around Brexit.”

 

The top 10 highest ranked cities in our latest index, which relates to the period 2015-17, and the most improved since last year’s index were:

 

Highest ranking cities     

 

Top 10 improvers 

               

Oxford

Preston

Reading

Middlesbrough & Stockton

Southampton

Hull

Milton Keynes

Milton Keynes

Bristol

Birmingham

Edinburgh

Wakefield & Castleford

Swindon

Aberdeen

Coventry

Liverpool

Aberdeen

Swindon

Leicester

Manchester

 

 

Source: PwC analysis

 

The index shows that almost all major UK cities improved their score relative to our 2017 index, driven primarily by rising employment. In general, those cities that have seen the biggest improvements in their overall score have also experienced particularly large falls in unemployment in recent years.

 

‘Price of success’ growing bigger

However, the “price of success” has also become increasingly evident recently as we see declining scores since last year’s index for transport, owner occupation rates and particularly housing affordability, which highlights some of the ongoing challenges faced by UK cities.

 

Manchester most improved combined authority

The research shows that English Combined Authorities have made improvements in each area compared to last year’s report.  Greater Manchester has experienced the largest improvement amongst the Combined Authorities as a result of an increase in the number of new business startups per head.  However, the West of England extends its lead at the top of the index rankings for combined authorities, driven by increasing skills amongst both the 16-24 and 25-64 year old populations.

 

Jonathan House, local public services and health lead advisory partner at PwC, commented:

 

“Against an uncertain economic and political backdrop caused by Brexit, the places where we live and work are more important than ever. It is vital that place leaders do all they can to take this current uncertainty in their stride, provide the stability needed for growth and reassurance for their communities to see them through for the longer term.

 

 

“Whether you’re a council leader, mayor or LEP chair, place leaders need to be able to tell the story of their city in a way that resonates on the doorstep and on the world stage, for today and for the future.

 

 

“Local industrial strategies require a step change in collaboration across a place, with connective leadership bringing together the best of the public sector and business to develop the shared evidence base that is critical to understanding a city’s USP.

“When it comes to good growth, place leaders need to go broad, taking a wide view on what economic success means and keeping the long term horizon in sight when considering the investments needed to create thriving places.”

 

Alan Lockey, head of research at Demos commented:

 

"Once again, this year's index shows a broad-based inclusive growth improvement in almost all cities across the UK. This is built upon a strong performance in some of the fundamentals of inclusive growth - skills, new business starts and above all high employment.

 

“Looking back at the Good Growth Index's ten-year history, these same factors are at the heart of the country's overall improvement - particularly in recent years. However, this reflection also allows to see more clearly the long-term threats to sustained inclusive growth. The biggest challenges concern housing - both in terms of falling ownership and housing costs - and now transport. The Government and city leaders would do well to focus policy on improving these issues in the coming years.”

 

Ends.

 

Notes to Editors:

 

About Good Growth for Cities

  • A copy of the Demos-PwC Good Growth for Cities Index 2018 can be downloaded from www.pwc.co.uk/goodgrowth from 00:01 hrs GMT, 1 November.

  • The Demos-PwC Good Growth for Cities Index measures the current performance of 42 of the largest UK cities, against a basket of 10 categories, based on the views of the public and business – as key to economic success and wellbeing. Employment, health, income and skills are the most important of these factors, as judged by the public, but housing affordability, commuting times, environmental factors and income inequality are also included in our index.

  • The Index is based on the overall distribution of cities scores and was averaged over the period 2015-2017. We use rolling three year averages in order to minimize the impact of volatility which can be present in annual data at a local level.

  • We have included cities with a travel-to-work area (TTWA) of at least 250,000 people.

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